UOne of the investment tools that has taken a great space in the crypto world are the well-known Initial Exchange Offering (IEO or Initial Exchange Offerings), which seek to capture the attention of investors so that they invest early in investment projects. cryptocurrencies, blockchain or DLT technology that a future can offer great returns to its initial investors.
Surely this definition is very similar to the Initial Coin Offering (ICO or Initial Coin Offerings), and the reality is that it is. In fact, their objective is the same, the only thing that changes are the forms. This is because in general IEOs are presented through exchanges recognized who study and endorse the project. In addition, the exchanges are in charge of raising funds for the startup or company that seeks to develop the project. This situation provides a certain assurance that the projects have some technical feasibility in addition to granting a visible, recognized and trustworthy face.
However What other advantages do IEOs offer us? Why are they presented as a better option compared to ICOs? Well this and more you will know below.
The beginning of IEOs
The birth of the IEOs had its greatest impulse in the different negative circumstances experienced in the "ICO boom" 2017. In that year, ICOs became one of the most used vehicles for startups to obtain investments that will boost their projects. The idea is simple, present a project to be developed or under development, with its vision, objectives and technical specifications, if you are there. And next to all this, present a coin or token that it had to be bought to obtain or not a significant participation as soon as the project was underway. Seen in this way, it looks a lot like a purchase of stocks or shares in a IPOOnly ICOs had two serious problems.
In the first place, the project was often non-existent or at times it was total nonsense, and secondly, there was no security of any other kind when you bought a token. Basically participating in an ICO was an "economic leap of faith", in which the investor gave money to people who could be perfect strangers who could disappear from one moment to another with your money and that of thousands of people who participated in ICOs . Results? 2017 was the Wild West, even more than normal. A host of scams, ghost projects, and unicorns that left multi-million dollar losses around the world. In that scenario, ICOs quickly lost their momentum, investors were fearful and quickly looked for new, safer alternatives. It is there where the STO (Security Token Offering or Security Token Offering) and of course, the IEOs (Initial Exchange Offering).
But surely you wonder What makes IEOs a better alternative to ICOs? Well, basically because an IEO is nothing more than an ICO where the offer is controlled by an exchange. That is, when you buy tokens in an IEO, you are actually buying tokens from a project endorsed by the exchange that serves as an intermediary between you and the developers of that project.
At this point, the exchange is a trusted third party that the investor decides to trust to make an investment in a project. This also leads exchanges to be careful about the projects they support, as their trust is at stake in all this, so promoting fake or impossible projects can lead them to lose huge amounts of money and undermine all their trust. In addition to this, the tokens in an IEO usually create a fast market since it is possible to buy and sell those tokens in the exchange launched by the IEO.
Differences between an IEO and an ICO
Now, you want to know exactly what the differences are between an IEO and an ICO. Well, in that case we can highlight the following major differences:
- An IEO is highly centralized. One of the first differences we see between an ICO and an IEO is that the latter is highly centralized. This is because everything is controlled by the exchange and the project developers. On the contrary, an ICO is usually more decentralized, since many of them are carried out through smart contracts. However, this point for ICOs is not a guarantee of decentralization either, because the smart contract can simply be a facade.
- To create an IEO, the project must show a minimal operating model of the project and also meet the acceptance requirements of the exchange. When we speak of minimal performance we refer to a MVP (Minimum Viable Product or a Minimally Viable Product). An MVP means that the project presented must have active some of the functions that it seeks to present to the public once developed. On the other hand, the exchange, its advisers and specialists impose certain conditions for the IEO to take place. The idea behind all this is to have a minimally functional product that gives exchanges and investors confidence in the project. On the contrary, in an ICO generally the existence of an MVP is a dream, and some projects do not even show a whitepaper thereof.
- An IEO guarantees that the token will have a secondary market after the pre-sale. In an ICO there are no guarantees of this and it may take months or years for the token to appear on an exchange.